Absurdity of Texas Wine Shipping Law Reaches New Heights

Categories: Wine Time

ranch dressing.jpg
Photo by Jeremy Parzen.
Castell'in Villa Chianti Classico is one of the greatest values in Italian wine today, but out-of-state retailers can't ship it to me in Texas... at least not legally.
On Friday, one of the most bizarre press releases I've ever read found its way to my inbox.

"The Texas Alcoholic Beverage Commission (TABC) has issued a Winery Permit to a new Wine.com location in Houston, Texas. This permit authorizes Wine.com to begin selling and shipping wine directly to consumers in Texas. Although Wine.com is not currently producing wine, the company meets all the requirements to hold a Winery Permit in Texas, including a federal Winemaker's and Blender's Basic Permit issued by the Tax and Trade Bureau (TTB)."

I can only wonder what the folks at the TABC have been smoking when I read the following official yet absurdist statement: "Although Wine.com is not currently producing wine, the company meets all the requirements to hold a Winery Permit in Texas."

absurdist art.jpg
Image via Amigomac.
In 1917, Duchamp transformed a urinal into a work of art. In 2011 the TABC transformed an online wine retailer into a winery.
Okay, let's leave the surreal question of a winery that doesn't produce wine aside for a moment and examine the motivation behind Wine.Com's move.

It's illegal for out-of-state retailers to ship wine to Texas unless they purchase the wine from a Texas distributor, ship the wine back to their own state, and then ship the wine back to the customer in Texas. Even though legal precedent has established that retailers have the right to ship to Texas (see the Commerce Clause of the United States Constitution), lobbyists for the major distributors of fine wine in Texas have succeeded in making it virtually impossible for an out-of-state retailer to ship here legally through this ingenious legislative coup (even though scores of out-of-state retailers ignore TABC requirements).

There is, however, an exception to this rule: If you own a winery in the state of Texas, you can operate as both a distributor and retailer of wine. (I won't get into the sticky issue of the "three tier" system here; see this thread in Tom Wark's excellent blog Fermentation for an overview of how most states, like Texas, require that importers, distributors, and purveyors -- restaurants and retailers -- be separate and independent entities.)

The case of Wine.com is not the first instance of a business obtaining a winery license in the state of Texas so that it can legally sell wine online here. In fact, there is more than one faux winery in Texas that was created for this very purpose.

But the license represents the first instance -- to my knowledge -- where the business in question doesn't produce wine. Clearly, the intent of such a license is to allow Texas wineries to compete with the big distributors (and the intent of current legislation is to protect both Texas-based distributors and Texas wineries).

But the fact that the TABC has openly granted the license to a business that doesn't produce wine is downright absurd.

The good news is that Wine.com will be able to distribute products not currently available in the state of Texas -- like the Castell'in Villa Chianti Classico, above, which made it to my doorstep thanks to a rogue out-of-state retailer (coincidentally based in San Francisco, the same city where Wine.com operates).

The bad news is that it's come to this. An entire generation of young Texan wine lovers and professionals still doesn't have access to a tide of great wine that their counterparts in cities like San Francisco, Seattle, and New York can order with the click of a button. Just ask the two Texan wine professionals who became Master Sommeliers this year, Devon Broglie and Craig Collins (both based in Austin): They both had to travel out of state in order to taste wines that they can't find here (San Francisco was their top destination during their training for the blind tasting exam). The reason? The greedy distributors don't want them to have access to wines they don't sell themselves. Fair enough. But at this rate, Texas is creating a new field of disadvantaged, however, devoted wine professionals who will never know what a Castell'in Villa tastes like.



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36 comments
customer
customer

 Its funny i never even knew about this law or bill,i guess it got tacked on behind another bill and passed real quick so the public would not catch wind about it.Our public would never pass more government regulation on importing wine from other states.

customer
customer

 Yes he did seem offended- and it is wrong that Texas makes it hard for us to get wine shipped to us from other states.Suddenly i don't feel so free...

Tom
Tom

Further the TABC has allowed Specs to build a new liquor store in Dallas where there was not one previously. How does one consolidate a newly permitted location?

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austin furniture stores

 Another option you can do is purchase a second set of slats. This option would give you maximum strength and support for almost any mattress and the extra set of slats can be placed in the gaps between the existing gaps to effectively fill in the foundation to be more solid. Because many slats systems are banded this may require you to purchase for a second set of slats that are unbanded which will allow you to place the slats more independently of each other between the slat system already in place.

Wine Retail Houston
Wine Retail Houston

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Jon Erickson
Jon Erickson

No regulation is good regulation except in the case that it stomps on my competitors and puts more money in my pocket. In this case it appears Texas likes its' government big too.

Drew Hendricks
Drew Hendricks

Jeremy et. al.

I wanted to post my views here far any interested parties to read. I was able to pass the Master Sommelier exam and build two Wine Spectator Grand Award winning lists in Texas with only wines available in Texas. In fact many agree that the vast majority of wines considered Iconic are available here with just a few exceptions. These are not here as there is no demand. When the demand isn’t there it just simply isn’t there, more on this in a second. Within the category of these exceptions there are other classic/Iconic wines available here.  I would also like to point out that the “greedy distributors” have often obtained state label approval and brought in one case of an item I was interesting in putting on my list many times. Without these “greedy distributors” we would have access to far less wine than we have now. Could you imagine trying to run a wine program like the exciting and ever-changing lists that Sean Beck has by ordering directly from wineries and/or importers? Wow what an onerous task and a logistical nightmare! Also, I would like to point out that ordering online and having an out of state retailer ship you wine can be quite costly and also only confounds the problem which you address above. If you will create a relationship with a real live person at a retail shop they can get you (almost) anything you want. Shoppy locally for wine also increases the chances of you getting your beloved Chianti as you thereby increase the local demand and then..well I guess I don’t need to lay out the obvious. At the end of the day wine is about relationships. That is why we wait until opportune moments to open “special” bottles of wine with friends and not by ourselves while reading blogs or looking at facebook. If you take time to establish relationships with retailers and sommeliers your view of the wine world will be expanded exponentially and you show how many wine lovers we have in Texas.  Enjoyed the follow up re:TABC. The winery permit is the most creative way for Wine.com to go it allows them complete flexibility. I say bravo to them as they have collapsed the three tier system to two thereby creating more margin for themselves. Unlike control states, in Texas a supplier can have more than one “distributor” so this opens up a world of possibility for them. Thanks for your time and dedication to our industry Jeremy your opinions and view are always engaging.

Tom Kisthart
Tom Kisthart

Jeremy, great article. However, I am disturbed that you have a squeezy bottle of Great Value Buttermilk Ranch dressing on hand.

Tom
Tom

Have any of you seen TABC sec 22.04 that states that no person may hold more than 5 liquor store permits in Texas. 

Mai Pham
Mai Pham

As a wine lover who loves to shop online, I can't tell you how frustrating it is to find a rare wine that you love available from a wine seller in another state, only to run into a roadblock during checkout because of Texas Law.

I buy wine from local markets/shops. But if the local shops don't have the wine I want, I should be able to buy it elsewhere. 

Texas distributors have basically been given a free license to operate a monopoly, all thanks to the TABC. And what does a monopoly do? It drives up prices. There are several wines I could buy out of state for $10 less a bottle than what I pay here. It's the consumer that ends up paying the middleman.  

I wish more people knew about this and fought it. If someone wants to start a petition to lobby an end to this ridiculous TABC rule, I will sign!!!

VollStadt
VollStadt

How do retailers of wine like Spec's fit into this whole thing, Jeremy?

TexaCali Ali
TexaCali Ali

Great scoop Jeremy, following closely and looking forward to learning more on this tomorrow from you!

JC Reid
JC Reid

Jeremy,

Crazy and fascinating story. Can you clarify if wine.com will only be selling wine it acquires from TX distributors? There seems to be some confusion as to whether an establishment with a winery permit in TX can act as a distributor thus providing whatever wines they want, or if they can only sell wine provided by other existing TX distributors.

Jeremy Parzen
Jeremy Parzen

This addendum from Tom Wark (sent to me via email):

But here's what needs to be understood. Wine.com is actually only able to sell and ship wines to Texans that it first purchased form a Texas wholesaler. That means that the Castell'in Villa Chianti Classico you mentioned can not be sold by Wine.com and shipped to a Texas consumer unless wine.com buys that wine from a Texas wholesaler.

What's really interesting is that Wine.com set up a physical presence in Texas and got the wine producers license in stead of a retailers license. You know why? Because a few years ago, when SWRA was suing texas for discriminating against out of state retailers, the TX legislature passed a law that limited Texas retailers to only shipping wine into the county where the physical retail outlet was located. However, a Texas "WINERY" can ship ship throughout Texas.

Jeremy Parzen
Jeremy Parzen

It just feels "un-American" to me... that I can order olive oil from Sonoma but I can't order Giacomo Conterno... Your point is so right on, Jon: in our famously and doggedly Republican state, the government wants to dictate what wines I can and cannot drink... in my own home! I love Texas but this fact makes me feel like the government has its hand up... well, you know where... 

Jeremy Parzen
Jeremy Parzen

Drew, thanks for posting here. I do think we're talking about apples and oranges: I'm writing from the point of view of the consumer, not the restaurateur/wine director. And the bottom line is that it doesn't really matter: I can always find an out-of-state retailer who's willing to ship me whatever I want. It happens every single day...

Great to see you here, man, and it's great that we're forming an online community of wine lovers and professionals here in Texas. 

TABC
TABC

Tom, Section 22.05 says that two people who are closely related can consolidate multiple package stores. That's how Texas ends up with family-owned chains of liquor stores that seem to violate 22.04.Carolyn Beck

Sec. 22.05. CONSOLIDATION OF PERMITS. If one person or two or more persons related within the first degree of consanguinity have a majority of the ownership in two or more legal entities holding package store permits, they may consolidate the package store businesses into a single legal entity. That single legal entity may then be issued permits for all the package stores, not­withstanding any other provision of this code. After the consolidation, none of the permits may be transferred to another county.

AC
AC

The “free market” isn’t propelled by what you “want” – it isfueled by what “works”. If one brings a wine like Castell’in Villa in (which Idid 30 years ago in a small distrib) and no one buys it – that product is freeto go away, maybe to come back again when it will work, when more people wantit. And yes, I know conspiracy theorists want to blame the large “greedy”distributors for preventing this so called “free market”. As there is nary ascintilla of difference in economic metrics both small and large distribs are subjectto (you buy – you sell – you hope to make and profit – and stay in business –and if that doesn’t work – you must close out the product – lose money and moveon – you do it fewer times you stay in business you do it too many times you goout of business). I doubt any government in Texas, in any economic cycle, isgoing to bail out a liquor company because they made unsound economic decisions.

 

Mai, this monopoly you bemoan is simply an inaccurateperception. There is no “free license” (you do love the “free” word). It is amatter of whether or not something will sell well and continue to sell. Period.No one in their right mind would discontinue any product or not bring it in ifit didn’t sell. Some products disappear from the marketplace because they didn’tsell or because the conditions just weren’t sustainable for a continued  and healthy economic life of the product.Edsels, Corvairs, Pintos, Yugos. They just didn’t work in the market in thetime. And they were “free” to go away. Maybe to come back again. Or maybenever. And anyone is “free” to try and make it work. Again and again. And thosesame people, taking those risks, might succeed. And they might fail. But thereis no bogeyman waiting in a dark corner, trying to prevent you (or anyone else)from getting what they want, in your “free market”. There may be a government regulation.And if you disagree with it you are “free” to go to Austin, plunk yourself downand work to change it. But if someone can’t sell it to you and do so in amanner in which they won’t lose money, then it just isn’t going to happen. Justbecause you, or anyone else wants their MTV, doesn’t mean it will be economicallyfeasible and sustainable.

And the folks who loved their Pintos and Edsels ( I had twoCorvairs and four Fiats, so I know about these things) they either had to finda way to keep them running ( short of moving to Cuba) or find another means of transportation.Or wait for the market to allow them to resurface (as in the case of Fiat)when a newer crop of consumers came into being who are willing to spend their money on them.

I forone do not think I will buy another Fiat, even though the new 500 is pretty darncute!

foodandwine247
foodandwine247

Would you really order a bottle of wine from an on-line and out-of-state retailer just to save $10?  You're taking the risk of breakage and (more likely) the wine getting cooked on a loading dock somewhere as it makes its way to your house... and what if it's a corked bottle - or what if you just don't like it?  You can't send it back like you could take it back to your local retailer if you'd purchased it here in town.  Go to a place like The Tasting Room, where they'll open just about anything and let you taste it before you buy it.  And, if you get home and find that a bottle is corked, you can bring it back and get it replaced.  Isn't that worth $10? (although they'll probably match the on-line price)  Isn't it better to support locally-owned businesses?

Jeremy Parzen
Jeremy Parzen

Mai, I'm so with you! For us to lobby the Texas legislature, we'd have to go up against the big distributor and the big retailers (who have no interest in seeing the law change). But sometimes the most important battles to fight are those you know you won't win... a famous winemaker, Baldo Cappellano, said that... it's so true... 

Jeremy Parzen
Jeremy Parzen

I just spoke to the TABC (always super nice folks there) and I was right (Tom is incorrect): Wine.com will be able to buy from sources outside of Texas. 

I'm going to do a follow up post tomorrow... 

Jeremy Parzen
Jeremy Parzen

As I understand it, they HAVE to buy from Texas distributors. But... because they are a winery in Texas, they can be their own distributor. Tom may know more than I do here. But from how I understand the local law, as a distributor, they could technically buy wines from importers outside of Texas and be the Texas distributor for that wine. I don't have a lot of hope that Wine.com is going to change the availability of wines that other Americans can easily buy but we can't. What I do know is that the system is broken and that there are TOO many young wine professionals who are missing experience and contact with all kinds of wines because of anachronistic, gerrymandering lobbying. I love Texas and I am very proud to be a new Texan. But I am ashamed of this practice. 

Jeremy Parzen
Jeremy Parzen

Great to see the TABC here! Carolyn, thanks for posting! 

Tom
Tom

But in response to Texas Attorney General letter of opinion request RQ-0805-GA, Administrator Steen stated, "the commission has allowed "bulk buys." "Bulk buys" is a process by which an individual or legal entity may purchase all the ownership interest in a legal entity holding a package store permit." Doesn the fact that the TABC has allowed multiple consolidations of liquor store chains, clearly go beyond the intent of the loophole created by 22.05 and go way beyond the original intent of the section.

FedUpWineBuyerInTX
FedUpWineBuyerInTX

Judging from your responses, you want anything BUT the free market to operate.  Thanks for telling us what we can and cannot buy and forcing us to pay more for it just so you can get your "share".  If the laws for distributing and selling alcohol in Texas are so great, why isn't every other good sold in Texas that way?

Mai Pham
Mai Pham

AC, with all due respect, your entire premise comes from the standpoint of a distributor who can't move product.

You do not once address the fact that most states do not prohibit the shipping of wines from out-of-state direct to consumer, while Texas passed some law that makes it impossible to acquire wines from out-of-state.  

So the question still stands: why not let out-of-state sellers ship directly to consumers in Texas? 

If the system is dictated by what "works," as you say, then let it take care of itself. Let out-of-state sellers ship directly to consumer. Plenty of other states do. And if people want to purchase from players in-state they will do so, right? And if that's what happens, then the out-of-staters won't be able to compete and will go away (using your line of argument). 

However, when you "keep it in the family" by keeping it all in Texas -- and you do this by passing a State law that somehow prohibits sales from out-of-state -- I'm sorry, but this to me means monopoly.

Jeremy Parzen
Jeremy Parzen

Alfonso, great points and great insights... and perhaps the expression "greedy distributors" was excessive (although, I will note that it was followed by "fair enough").

It's always great to see you here and it's great to read your insights — culled and gleaned from 30 years in the business. 

Thanks... 

And btw, wasn't that Castell'in Villa yummy last night? ;) 

Mai Pham
Mai Pham

Actually I buy wine by the case. So that $10 is actually $120. And, I wouldn't buy wine online that I am not already familiar with. I travel quite extensively and have tasted wines from many regions. Many of my fondest memories involve wine, and when I have one in a faraway place that hits "home" with me, I will usually hand carry back to the states. When that stash is gone, and I want to buy more, and I can't find it in Texas, I go online. 

I appreciate your advice, and absolutely I do support local. But one of the best things about being American is that we have a free market. And the argument can be made that the local prices should be on par with prices elsewhere in the country. When the prices are significantly different, I can only surmise that extra spread going to the middleman due to this Texas law.

In any case, my point is it's not just about saving money. The bigger part of it is that I should be able to buy the wines I love when they are available elsewhere, but not in Texas, and when I buy the same bottle of wine in Texas that I can get in New Jersey or Florida, I should not have to pay a 50% markup. (my example above was paying $30 here for a bottle that costs $20 elsewhere in the country).

ErinMcDavis
ErinMcDavis

"Big distributor" being the important distinction here...then again, if given the chance, I'm confident most of our smaller distribs would simply jump at the chance to become the newboss/sameastheoldboss.

acevola
acevola

The “free market” isn’t propelled by what you ( or I) “want” – it is fueled by what “works”. You are making it out to be a conspiracy when it is in actuality the free market in action ( and practice)

 

AC
AC

Yes, the internets can often sound different than when folksare in front of each other “a voce”.

My lengthy comments were an attempt to give you a glimpseinto the workings of our trade. Sorry that they were so long. But the wine and spiritsbusiness can’t be summed up in less than 140 characters. Also meant to dispel misconceptionsof this “monopoly” you talk about. They are law, and you have the right to workto change them. I am not concerned if I change your mind. But it doesn't changethe facts on the ground. As you know, every good journalist knows when to distinguishconjecture from fact.

In the end I’m not trying to change your mind, just offeringmy point of view. We all have the right to our opinions. As for myself, yourvery first comment above, to me, epitomized the textbook definition of acomplaint (i.e. an expression of discontent, regret, pain, censure, resentment,or grief; lament; faultfinding).

Happy Holidays…

Mai Pham
Mai Pham

It was just the overall sarcastic tone and length of both of your comments, and the "Have at it" bit, AC. It didn't feel like a discussion, it felt like a lecture. Maybe one day we can meet and discuss as you say, and it will sound different than it sounds in writing, but until then, thank you for your comments. They didn't change my mind, but your points are noted.

AC
AC

"I should be able to buy the wines I love whenthey are available elsewhere, but not in Texas, and when I buy the same bottleof wine in Texas that I can get in New Jersey or Florida, I should not have topay a 50% markup."

Not sure I would characterize the above quote as "facilitating".

 

If you lived in New Jersey, or Florida, you'd be paying alot more to live there. So you save $5 on a bottle of wine, occasionally, butspend more on rent, transportation, state income taxes and a much higher costof living.

And yes, one of the purposes of a blog is to engage in a discourse. And noteveryone will agree with each other.

 

But I’m not sure how you take away disdain from thisdiscussion, when there is a good deal of information that has been thoughtfullyshared in order to give you (or anyone who cares to read it) a greaterperspective of the process and the industry.

 

I misunderstood. I thought you might be interested in an accountof the workings of the trade. It sounds like you have taken offense. For that Iam sorry you took it that way.

Mai Pham
Mai Pham

"I don't see how just complaining will make it any better. But if it makes you feel better, hey it's a "free" country. Have at it."

And here I thought I was just facilitating discourse, and voicing a valid consumer viewpoint, which is the purpose of a blog after all. I'm sorry you don't agree with me, but me voicing my opinion (which in this case happens to be in agreement with the writer) should not be disdained as a complaint.

AC
AC

Mai, with all due respect, there is plenty of productmoving. And scores of retailers and restaurants buying the product and payingthe taxes on them (so folks like you and I don't have to pay state incometaxes, like most states). But there is always about 5-10% of product thatdoesn’t sell. Have you ever dumpster dived in the back of a supermarket?

 

Direct shipping? As far as Jeremy Parzen reports, he seemsto be getting what he wants. But there is a logistical problem with that. Let’sjust envision a scenario in which all wine is shipped directly:

Imagine a city like Houston. It’s Dec. 3, andthere are 64,000 cases of wine, beer and spirits waiting to be delivered thatmorning by one of the large distributors. But wait, with all the distributorsin play, large and small, triple that number to 192,000 cases – not at all anunusual number for that city at that time of year.

Now imagine FedEx, UPS, DHL and the USPS (especially inthese times, when the post office is cutting services) delivering all those boxes,along with everything else they deliver. Keep in mind that anything going to ahotel or restaurant will need to be delivered at a specific time. And if any ofthose cases are going to a supermarket, they’ll be expected to arrive before 6a.m. If beer and quality wine are on the trucks, the trucks will need to betemperature-controlled. More important in Houston are refrigerated trucks fromMay to October, but in some parts of the country, they’ll need to be heated. Doyou think FedEx, UPS, DHL or the USPS is going to buy those trucks? Who’s goingto pay for them?

Now imagine that scenario all through the monthof December, when other packages, mail, etc., are being delivered. And imaginethat happening in Dallas, Denver, Los Angeles, San Francisco, Chicago, Atlanta,Boston and all the other large cities in the US. Then imagine New York City,where you can multiply those 192,000 cases by a factor of 5. And that’s forjust one day.

And then there is the obvious environmentalissue.

I have a writer friend who gets samples sent fromproducers on a regular basis. Sometimes it is a single bottle, sometimes atwo-pack, three-pack even a six-pack or 12-pack. In each case, there ispackaging. About half the time, it’s polystyrene foam that she can’t recycle.Now imagine tens of thousands of people getting their wine shipped to theirhouses. At a time when industries are trying to figure out ways to cutpackaging and to create smaller carbon footprints, the packaging plus the fuelcost of shipping individual or small packages of bottles becomes staggering.

I know some people will say that we already get alot of products delivered to our doorsteps this way. But a bottle of wine isn’tlike a mattress or a painting that gets shipped once. It’s a consumable productthat is replenished regularly. The current wholesale distribution system offersvast economies of scale with transport both to central (andtemperature-controlled) distribution centers and to retail stores. A consumercan drive to a central location – a retail store – that has lots of options.And if she special-orders a wine that is at the warehouse, it’s delivered witha load of other wines, not as a single bottle, specially wrapped, in a singletruck.

There is also the “local” perspective

When you read about a wine and want to get abottle, you have several options. You can buy it at a neighborhood supermarketor wine store (which, in our culture of immediate gratification, is what mostwine drinkers want to do). You can order it online (at this point in somestates, not all) or you can order direct from the winery (also in some states,not all).

But from a local perspective, if you buy online,the money leaves your community whereas if you buy from a store (say from oneof your advertisers, Specs, etc), a lot of the moneys stay in your community topay things like salaries and wages of store workers, delivery people, localdistributors and their employees. And local advertising, like in your magazine.Any taxes accrued will be local taxes, benefiting your local state orcommunity. The bottle of wine you buy is one of 12 in a case that weretransported together to the store, saving on transit costs by making shipmentmore efficient.

If you buy from a local wine store, you’ll havethe opportunity to develop a relationship with your merchant who can learn yourlikes and dislikes. This can also happen online with some software. It wouldnot be a face-to-face kind of relationship. If you want more of the wine,again, it’s a short drive from your house. And if the wine is flawed, it’s easyfor you to return it and get a replacement bottle. You won’t have to hasslewith repackaging sending it – after it’s been uncorked. The wholesaler,importer and producer will take care of that.

There are more choices now than ever. 20 years ago there were about 20% of theSKU's that there are now. Along with that, there are many wines that have beenin Texas that have dropped out (economy, winery didn’t get paid by wholesaler,lack of demand, etc). And it has been re-iterated that anything that anyonewants, in the state of Texas, the distributors are more than happy to bring in.Working inside the laws we are bound by. Not the laws I made. That said, if awine is brought in and does not have a viable life, those wines will go away.It is the way free market economies work.

You are welcome to jump in and try to change the system. I don't see how justcomplaining will make it any better. But if it makes you feel better, hey it'sa "free" country. Have at it.

I see and know the argument from both sides. And while I am not entirelyopposed to the position you hold, I know there are reasons for the currentconfiguration in the marketplace. It is not a grand conspiracy set in motion bythe distributors. You’re welcome to think it is, but it is inaccurate.

 

Maybe some day we can have a real conversation, inperson, to go deeper in depth. Our mutual friend and colleague, Dr.Parzen should join us.

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